AM Best has affirmed the financial strength rating of A (Excellent) and the long-term issuer credit rating of “a+” (Excellent) of Bermudian-based Stellar Insurance Ltd, an indirect wholly owned subsidiary of the Saudi Arabian Oil Company.

The outlook of these credit ratings is stable.

The ratings reflect Stellar’s balance sheet strength, which AM Best assesses as very strong, as well as its strong operating performance, neutral business profile and appropriate enterprise risk management.

The agency said Stellar’s balance sheet strength is underpinned by its risk-adjusted capitalisation that is expected to remain comfortably at the strongest level, as measured by Best’s capital adequacy ratio, supported by the company’s low underwriting leverage, earnings retention and comprehensive reinsurance programme.

Last month, Stellar restructured its investment portfolio, with more than 80 per cent of the company’s invested assets converted into a promissory note from SAOC.

AM Best said: “While this investment strategy is common for captive companies, Stellar’s investments now are significantly more concentrated, albeit with a financially strong affiliated company.

“Stellar remains reliant on reinsurance to provide high gross underwriting limits. The credit risk associated with reinsurance is mitigated partially by Stellar’s use of a diversified panel of financially strong reinsurers.”

The agency added: “Stellar has reported strong operating results over the past five years, mainly driven by robust underwriting profits in the absence of large losses.

“In 2023, the company experienced a net-net combined ratio of -21.4 per cent [2022: 17.3 per cent], as calculated by AM Best, with the company’s five-year [2019-2023] net-net combined ratio ranging between -21.4 per cent and 35.9 per cent [these metrics are calculated using a combination of IFRS 4- and IFRS 17-reported figures].

“The company’s return on equity stood at 13.9 per cent in 2023, skewed by its relatively large capital base.

“AM Best expects the company’s performance in 2024 and prospectively to remain strong, albeit over the longer term subject to potential volatility due to the captive’s exposure to high severity, low frequency losses in its energy programme.”

The agency said Stellar’s business profile assessment reflects the key role it plays in SAOC’s overall risk management framework. As a single-parent captive, Stellar’s purpose is to provide transfer solutions for risks emanating from SAOC and its affiliates’ operations.

Stellar’s portfolio is concentrated by line of business, with the majority of premiums represented by energy onshore and offshore property risks, as well as by geography with approximately 84 per cent of premiums associated with risks located in Saudi Arabia.